Shareholding director is an employee: Gladwell v Secretary of State for Trade and Industry

Gladwell v Secretary of State for Trade and Industry, EAT, 25 October 2006

Background

Mr Gladwell held a 50% shareholding in and was a full-time executive director of Phileas Fogg Travel Limited. He was subject to a contract of employment setting out his salary and holiday entitlement.

In 2005, the company went into liquidation, and Gladwell sought to recover sums owed to him from the secretary of state, but his application was refused on the basis that he had not been an employee. Gladwell complained to the tribunal, which held that he was not an employee. Gladwell appealed.

Decision

The EAT upheld Gladwell’s appeal that he was an employee. The tribunal had been correct to give little weight to the employment contract, which was undated and unsigned, and had also correctly considered the relevant factors supporting employee status (full-time work, PAYE deductions, set holiday) against factors indicating self-employment (his injection of capital when the business was in financial difficulty and subsequent self-imposed salary reduction) and his 50% ownership of the company. However, the EAT said the tribunal had been wrong to make Gladwell’s joint control of the company the decisive factor, as the tribunal statement that a person cannot be both employer and employee was inconsistent with previous Court of Appeal decisions.

Comment

This case confirms that the fact an individual is a controlling shareholder is a factor in considering whether or not they are an employee, but it is not necessarily a decisive factor. Control is not inconsistent with employee status. Similarly, the fact that an individual invests capital into a business does not automatically lead to a conclusion that they are self-employed.